The Predator State

[Aaron]

Tonight on Bill Moyers on PBS, there was
an interview with economist James K. Galbraith
that was the most straightforward explanation
of the current economic situation in America
that I have heard.

Bill Moyers Journal . James K. Galbraith | PBS

[Ingram]

Excellent article Aaron,
Thanks for the link!

Below is a post dated 9/08/08 from my political blog that rang surprisingly similar to me. Hopefully the American people will clue in and take action against this type of exploitation.

Wickipedia defines predatory lending as:
“The practice of a lender deceptively convincing borrowers to agree to unfair and abusive loan terms, or systematically violating those terms in ways that make it difficult for the borrower to defend against.”

Enter the ARM or adjustable rate mortgage in 1982 under the Garn-St Germain Depository Institutions Act that deregulated the savings and loan industry as a Reagan administration initiative. This initiative was passed with a Democratic majority in Congress and a Republican majority in the Senate and was a major contributing factor to the savings and loan failures in the 1980’s & 1990’s that cost taxpayers (that’s you and me folks) $124 – $160 billion dollars. But it doesn’t stop there.

Based on similar practices the public is now on the hook for oh, around six trillion (yes, that’s with a “T”) dollars of debt accumulated by publicly traded companies. That would be companies that hold 10% of China’s GDP as investments.


Does the ARM fall under this specific definition of predatory lending? Perhaps not in the strictest sense but it is a overt indicator of a lending practice designed to exploit a borrower to the fullest extent possible in the current circumstance. Unfortunately for both the borrower and lender of ARM’s, circumstance (or Whitehouse fiscal policy) conspired to create an economic environment of lowering employment and a housing correction that lead us to where we are today.

These practices are not limited to adjustable rate mortgages. Rather they were precluded by variable rate credit cards issued by the very same financial institutions that seem to be having trouble due to defaults in mortgages and loans on a massive scale. This is also the industry that lobbied long and hard for revision of the bankruptcy laws passed in 2005 by President Bush in order to reduce lender losses.

As I am sure you know, lending practices for credit cards and ARM’s are very deliberately designed to entice the borrower with low interest rates and then crank them up so that the lender can make exorbitant amounts of capital on the borrowers back. Particularly in the event of cash advances or late payments.

Who’s at fault?

* The borrower who may or may not be educated in the ways of finance and fiscal management?

* The lender in search of the best return on investment?

* The mortgage or loan officer downplaying the potential effects of rate hikes and penalty fees?


How about all and none of the above.

The fact of the matter is that it has become a predatory market of investors preying on the consumer facilitated by Federal Legislation.

Perhaps instead of putting my children and I in hock, our government should implement controls on predatory lending practices because as we can see, this is a failed fiscal policy that does nothing but promulgate wealth for a small minority at the expense of the taxpayer.

I know, small government and less interference… but what we are seeing today again demonstrates that financial institutions control of government leads to predatory practices and eventually to massive governmental bailouts and industry regulations to rectify the practices that should be disallowed in the first place.